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Machine Hour Rate Calculation

Today, I studied two more examples relating to machine hour rate calculationand came on this plate form to explain more clear about machine hour rate.

In simple words, Machine hour rate is base to calculate overheads more fastly without wasting time. We associate all overheads with using of machine and it is very easy for cost accountant to calculate total cost if we know machine hour rate and total hours of machine used. It also useful for calculating each job's machine hour cost.

For Example

Gemini enterprises undertakes three different jobs A,B and C. All of them require, the use of a special machine and also the use of a computer. The computer is hired and the hire charges work out to Rs. 420000 per annum. The expenses regarding the machine are estimated as follows:

Rent for the quarter Rs. 17500

Depreciation per annum Rs. 2,00,000

Indirect charges per annum Rs. 1,50,000

During the first month of operation the following details were taken from the job register.

Number of hours the machine was used : A → B → C

a ) Without the use of the computer 600 → 900

b) with the use of computer 400 → 600 → 1000

You are required to compute the machine hour rate :

a) For the firm as a whole for the month when the computer was used and when the computer was not used.

If you are learning cost accounting, you know what is job, job is specific work in production process which we can easily identify. In above example, there are A, B and C job. so, we can calculate machine hour for each job after calculating total Machine hour rate with and without computer

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